Revised estimates of Japan’s growth have been cut in half, from 1.4% to .7%. More importantly, Japan has a small but shrinking current account surplus (in spite of running a trade deficit for some time).

Once the current account surplus vanishes, and I believe it will, Japan will become somewhat dependent on foreigners to handle its budget deficit. Good luck with that at 0% interest rates.

Japan’s economy expanded in the second quarter at half the pace the government initially estimated, underscoring the risk of a contraction as Europe’s debt crisis caps exports.

Gross domestic product grew an annualized 0.7 percent in the three months through June, the Cabinet Office said in Tokyo today, less than a preliminary calculation of 1.4 percent. The median forecast of 26 economists surveyed by Bloomberg News was for a revised 1 percent gain. The current-account surplus fell 41 percent from a year earlier to 625.4 billion yen ($8 billion) in July, a finance ministry report showed.

Gridlock in parliament may limit fiscal stimulus just as Japan’s expansion is restrained by weakness in global demand, strength in the yen, and the winding down of car-purchase subsidies. A slowdown in Asia may further curtail exports and add to pressure for monetary easing after Chinese data yesterday suggested the region’s biggest economy is losing steam.

In a sign of slackening foreign demand for Japanese goods caused by the euro zone debt crisis and China’s slowdown, the July current account surplus came 40.6 percent below year-ago levels, reflecting a drop in exports.

However, due to a slower rise in imports, the fall in the surplus to 625.4 billion yen ($8 billion) was less pronounced than the forecast 56.8 percent drop to 455.0 billion.

Should the economy require more fiscal stimulus, the policy response could be delayed as policy making has ground to a halt due to a stand-off between the ruling and opposition parties.

Mathematical Impossibilities

Notice the absurd reliance on stimulus, in spite of a shocking amount of debt, exceeding 200% of GDP.

Moreover, the idea of fiscal stimulus is actually preposterous given the government wants to hike taxes to do something about the deficit and mammoth amount of debt.

Japan wants to do two things at once and it is mathematically impossible.